A growing list of vaccine candidates have rolled out in recent weeks, offering the world a potential exit from a global pandemic nightmare that has claimed some 1.4 million lives in less than a year.
On Monday, Astrazeneca AZN, -1.08% and the University of Oxford said their COVID-19 experimental vaccine candidate has shown 90% efficacy in preventing infection, in late-stage trials, helping the markets rally to start a holiday-shortened week.
On Monday, the Dow Jones Industrial Average DJIA, +1.12% finished 1.1% higher and the S&P 500 SPX, +0.56% notched a 0.6% gain.
However, the question that Deutsche Bank’s Alan Ruskin poses is a simple one. “Is that it; is a vaccine largely priced?”
The macro strategist concludes that the answer is simply no, and it may be that the reaction in markets, in particular currencies, will play out over the next year and a half, at a minimum.
“The short-run effect as it relates to financial markets, suggests that indeed immediate leverage trades are starting to struggle. However,
if the vaccines fulfill their promise, their impact would dominate the real economic landscape for the next 18 months at least,” Ruskin wrote.
The Deutsche Bank analyst said that government bonds TMUBMUSD10Y, 0.867% may remain anchored lower as the central bank’s easy-money policies and other stimulus measures remain intact for the foreseeable future, and equities could remain elevated despite lofty price-to-earnings ratios that many argue are getting out of whack with fundamental earnings.
Ruskin said that the much-ballyhooed rotation into value-oriented assets and away from popular trades, which worked best during the social-distancing phase of this public-health crisis, may keep stocks buoyant.
But currencies may have the most room to run higher and haven’t properly reacted to the upbeat vaccine reports, the analyst wrote.
“The good news is that unlike the assets described above, most valuation metrics still put some of the most obvious currency beneficiaries of
a vaccine, as cheap,” Ruskin wrote.
The researcher said the Brazilian real BRLUSD, -0.02 USDBRL, +0.02%, the Turkish lira TRYUSD, -0.11% USDTRY, +0.11%, the Russian ruble RUBUSD, 0.17 USDRUB, -0.17%, Chile’s peso CLPUSD, USDCLP, , the Indonesian rupiah IDRUSD, -0.23 USDIDR, +0.23% and Columbia’s peso COPUSD, USDCOP, are relatively cheap and have substantial ground to cover higher against their currency rivals as the vaccines help to recharge the global economy and quell the contagion.
Ruskin said that many of the currencies considered undervalued fall within emerging markets and may also benefit from carry trades, where currency traders borrow in a lower-interest-bearing currency, like dollars or yen, and invest in a higher-yielding currency.
Ruskin said that vaccine breakthroughs may provide a floor on the downside in the markets and could help prompt a more synchronous updraft across markets .